ESG, SRI, Ethical Funds, Ethical companies. These are the trend words around Responsible Funds Management in recent times.
ESG, SRI, Ethical Funds, Ethical companies. These are the trend words around Responsible Funds Management in recent times. Locally it is no coincidence. The rise of Ethical Funds Management has come off the back of a horrendous 2019 fire season, where untold damage to the natural and built environment unfolded at an extreme and rapid rate.
The recent popularity of Ethical Funds and Companies made me question the Funds Management businesses. I want to better understand the Ethical screening process in stock selection as their aim is to deliver a basket of companies that the end investor can feel proud to own. It is worth observing the backdrop of the ethical approach from a monetary perspective. The lure and effective marketing from prominent Ethical Funds Management companies has seen instances of their share price tripling over 12 months.
Socially Responsible Investment or Environmentally Conscious investments in recent times conjure up thoughts of Trees, Wind, and Solar, with Carbon Emission neutrality at the core. It is important to note that any Ethical Funds and the Managers take a subjective approach to their Ethical mandate. However, the tag line is often tied with investments that do not have activities closely linked fossil fuels such as weapons, tobacco and alcohol.
Recent trade tensions and aggravated language between Australia and China may rewrite the Ethical Funds Management approach to investing. It also illustrates the fragile nature of the Ethical Investment approach. A company like Apple makes it through several Ethical Funds Management filters. Apple highlights its Core ESG Values. Environment: Carbon Natural Plan by 2030, Social: Empowerment to People, Governance: Informed and Effective Decision Making.
Apples key manufacturing base is within Chinas Guangdong Province. A company that places and operates it Business utilising Chinese Labour and Capital within a Totalitarian and Communist state may be viewed as contradicting their own ESG Core Values. But it’s okay, Apple often makes it onto the “good list” when it comes to Funds Management Businesses and Ethical Company filter selection, being primarily driven by Apple’s indirect exposure to fossil fuel activity.
Investors need to challenge the status quo of Ethical Funds Management and businesses that “claim” to take environmental challenges seriously. Is it more environmentally damaging to own a company that operates its businesses and labour within a country that represses human rights, or own one that has higher carbon dioxide emissions? I can’t answer this for you, but I don’t like being misled because some companies can effectively sidestep what it really means to operate in an environmentally conscious manner.
If you want to know more about Ethical Investments, please contact the team at Steve May Financial Services.
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Shanley Financial Planning Pty Ltd trading as Steve May Financial Services (ABN 19 612 825 180) is a Corporate Authorised Representative of (1265706) of Sensibly Pty Ltd (AFSL 533923)
Nick Shanley, Steve May and Luke Styles are Authorised Representatives of Sensibly Pty Ltd (AFSL 533923)